August U.S. inflation comes in stronger, bolstering the case for another Federal Reserve rate increase

U.S. consumer prices rose by 0.4% in August, matching market expectations and accelerating from a 0.1% increase recorded in July.

On an annual basis, inflation held steady at 3.4% in the twelve months through August, unchanged from the previous month and in line with economists’ forecasts.

Core inflation, which excludes the more volatile food and energy categories, increased by 0.3% in August after a 0.2% rise in July. Meanwhile, the annual core CPI eased slightly to 2.4% from 2.5% in the prior month, suggesting underlying price pressures remain relatively contained.

The latest increase in inflation was largely driven by higher gasoline prices amid escalating geopolitical tensions, reinforcing expectations that the Federal Reserve may opt for an interest rate hike at next week’s policy meeting.

Additional support for a more hawkish Fed stance came from Thursday’s Producer Price Index report, which showed a stronger-than-expected increase in wholesale prices. Several key components that feed into the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, also registered notable gains.

Furthermore, last week’s solid U.S. employment report underscored the resilience of the labor market, adding to speculation that policymakers may favor tighter monetary policy to keep inflationary pressures in check.